India’s Congress Defeated in Polls as Gandhi Campaign Flops

March 6 (Bloomberg) -- India’s ruling Congress is heading
for defeat in two key provincial elections, including a rout in
the country’s most populous state where leader-in-waiting Rahul
Gandhi had staked his reputation as a vote winner.

In Uttar Pradesh, home to 200 million people, the regional
Samajwadi Party was on course to win an outright majority in the
403-member assembly, according to data from the Election
Commission. Congress was ahead in 27 seats, just five more than
it secured in 2007, and will not play any role in forming the
next administration. It was also behind in Punjab.

“Voters punished Congress for corruption and high
inflation,” said Satish Misra, a political analyst at the New
Delhi-based Observer Research Foundation. “Economic reforms
will be first casualty as the government’s dependence on
aggressive allies will continue. The countdown for early general
elections has begun.”

Today’s results determine who leads about a fifth of
India’s population and are a verdict on Prime Minister Manmohan
Singh’s Congress after he endured one of the most challenging
periods of his eight-year premiership in 2011. Corruption
scandals and clashes with parliamentary partners have stalled
legislation, including plans to allow companies such as Wal-Mart
Stores Inc. to open supermarkets in India.

‘Go It Alone’

“The tally seems to suggest that the Samajwadi Party may
go it alone” in Uttar Pradesh, said Shankar Char, vice-president at ICICI Securities Ltd., a unit of India’s largest
private lender. If Congress’ support had been needed to rule the
state, Singh could have demanded Samajwadi Party backing for his
federal government, easing the passage of policies, Char said.

India’s benchmark stock index declined, reversing earlier
gains, as the Samajwadi Party increased its tally and sidelined
Congress. The benchmark BSE India Sensitive Index, or Sensex,
dropped 1.1 percent as of 3:26 p.m. in Mumbai after being up as
much as 1.9 percent earlier.

The Samajwadi Party was ahead in 218 seats in Uttar
Pradesh, election commission data showed. Chief Minister
Mayawati’s Bahujan Samaj Party led in 86 and she was set to
resign her office. The BJP, which led the attack on Congress
over graft, was winning in 45 constituencies.

In other elections, Congress was losing a close race with
its main nationwide rival, the Bharatiya Janata Party, in the
northern state of Uttarakhand. While it retained power in tiny
Manipur, the BJP was set to oust Congress in the tourist state
of Goa.

Gandhi Flop

The result in Uttar Pradesh is a setback for Congress in
what is the most important ballot since the general election
nearly three years ago. The state, which straddles the Ganges
River, has almost as many people as Brazil.

It was also a personal defeat for Gandhi, who had been
supported by his mother, Congress President Sonia Gandhi, and
sister Priyanka during an intense three-month campaign.

“It leaves Rahul Gandhi very precariously placed,” said
Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund
Management. “He has been completely ineffective, he just has
not been able to carry the voters.”

New York-based Eurasia Group said last year that it expects
Gandhi, the 41-year-old scion of a dynasty that has dominated
politics for 45 of India’s 64 years since independence, to
become the party’s next leader in 2012.

Indians took to the streets in 2011 to protest alleged
graft in an award of mobile-phone licenses and inflation that
stayed above 9 percent for most of the year.

Growth Slowing

Business leaders have called on Singh to accelerate policy
changes as growth moderates. India’s economy grew 6.1 percent in
the last quarter, the slowest pace in more than two years, as
domestic demand weakened and the global recovery faltered. The
next national election is scheduled for 2014. Finance Minister
Pranab Mukherjee will announce the federal budget March 16.

During Mayawati’s five-year term, she was criticized by
rivals for displays of wealth such as raising statues of her
political heroes in a state that is home to the highest number
of people living in poverty in India.